Woodside Petroleum
has moved one step closer to an entry into Israel’s lar­gest natural gas field but has had to agree to revised terms that require it to pay more for a smaller stake than or­igin­ally envisaged.

Woodside and the existing partners in the giant Leviathan field now intend to negotiate a final agreement by March 27 on a deal that would give the Australian company a 25 per cent stake in the offshore Leviathan field at a cost of up to $US2.5 billion ($2.79 billion).

Chief executive
Peter Coleman
’s ambitions for Woodside to buy into the Leviathan field to develop an LNG export project, first revealed in December 2012, have been plagued by delays in settling Israel’s gas export policy and in finalising fiscal terms.

Last year also saw new gas marketing options open up for the Leviathan venture, led by US player
Noble Energy
, that would involve exports by pipeline to neighbouring countries around Israel, pushing an LNG project into the background.

The opportunity for nearer-term, potentially higher-returning gas pipeline exports, combined with an upgrade in the estimated resources within the field, has inflated the price for Woodside’s entry.

But Citigroup said the price Woodside is paying had increased “only modestly", to US28¢ per thousand cubic feet of resources, up from US25¢. That compares with the US88¢ per thousand cubic feet that Woodside secured from Mitsubishi and Mitsui when it sold a stake in the Browse LNG project in Western Australia in 2012.

In the latest memorandum of understanding, the up-front payment Woodside will pay on completion of the deal rises to $US850 million from the $US696 million envisaged in the in-principle agreement of 14 months ago.

It will also pay $US350 million once the Leviathan partners give the final go-ahead for an LNG project, plus up to $US1.3 billion of fees on gas export revenues once 2 trillion cubic feet of gas have been produced. Further royalties are due on potential oil production, and a $US50 million payment depending on the final size of the resource.

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Mr Coleman said the revised terms still provided a potential commercial deal with “compelling" value. Woodside had originally planned to take a 30 per cent stake of the 19 trillion cubic feet Leviathan field. Noble Energy chief executive
Chuck Davidson
said Woodside “brings extensive global expertise in LNG operations and marketing" to the venture.

“Their addition to the project will result in substantial added value while also bringing us much closer to when we will be able to sanction Leviathan for development," he said.

Speaking to investors on Thursday US time, Mr Davidson said the venture was aiming to secure all necessary approvals to give the go-ahead this year for an initial phase of development, involving a gas supply project in Israel.

He signalled that the second phase would involve sales of gas by pipeline to countries such as Egypt, Jordan and Turkey. LNG is envisaged only as a third phase, potentially in a relatively modest 3.5 million tonnes a year floating project.

“Our belief is that there still is a need for an LNG solution here," he said.

“But it may not need to be as large as what we were anticipating a couple of years ago. [So] some of these regional markets give us an opportunity to market not only more gas, but also the accelerated development."